Direct Equity Tax Credit

By mmuise

The Direct Equity Tax Credit is designed to encourage private investment in new or expanding small businesses as a means of creating new jobs and diversifying the economy. An investment credit, in the form of a provincial income tax credit, is available to individuals and arm’s length corporations who invest as shareholders in eligible small business activities.

Comments on Funding:

There are two tax credit rates:
- a 35% rate applies when the qualifying activities are undertaken in the Province outside the North East Avalon,
- a 20% rate applies when the qualifying activities are undertaken within the North East Avalon.
In cases where qualifying activities are undertaken in both areas, a reasonable proration applies.
The maximum annual tax credit per eligible investor is $50,000.

Deadline: Rolling deadline

Applicants must be:

  • individuals 19 years of age or older who are residents of Newfoundland and Labrador or otherwise paying income tax to the Province,
  • corporations which operate at arm’s length from the eligible business.

    In order to qualify as an eligible business, a corporation shall:
  • be a Canadian controlled corporation and not a publicly traded corporation,
  • have a permanent establishment in Newfoundland and Labrador,
  • have less than $20 million in assets, including associated corporations,
  • utilize in the province all of the capital raised from the specified issuance,
  • have no more than 50 full time equivalent positions,
  • have at least $25,000 of either or both of shareholder equity and shareholder loans before applying for certification,
  • must be engaged in, and will utilize funds for, qualifying activities (technology, research and development, aquaculture, forestry and agrifoods, manufacturing and processing, export / import replacement businesses, tourism, cultural industries).
Application Steps:

Applicants must:

1. make an application to the Department of Finance to obtain certification. This verifies that the specified shares are eligible for the tax credit. Pre-approval of eligibility is required.

2. submit an official tax credit receipt with the individual’s T1 Income tax return or the corporation’s T2 income tax return.

Documentation Needed:

Applicants must submit:
1. an official tax credit receipt,
2. the individual’s T1 Income tax return or the corporation’s T2 income tax return
3. financial statements, as required by the Minister. These statements must include an independent auditor’s statement that the corporation is in good standing and that the specified share issuance meets all the requirements of the Direct Equity Tax Credit program.
4. information confirming the use or disposition of capital raised under the Direct Equity Tax Credit program, to ensure compliance with requirements such as qualifying business activities and prohibited uses of funds, if requested
5. a detailed status report of shareholdings for five years after specified share issuances and detailed information on the directors of the investing corporation.

The following information should be included with the application:
1. names and addresses of all directors of the applicant corporation,
2. copy of the certificate of incorporation,
3. financial statements for the most recent year end of the corporation and all associated corporations together with a review engagement report or auditor’s report,
4. income tax returns and schedules for the preceding taxation year for the corporation and all associated corporations,
5. the amount to be raised by the specified issue,
6. detailed description of the proposed business activities,
7. detailed description of the proposed use of funds raised,
8. the proposed locations for the utilization of funds,
9. other information that the Minister may require.

Other Things to Note:

No other details available.

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